Harry Potter and Hollywood Gone AWOL in Indonesia

This being on my purported beat of Southeast Asia, here's some interesting news. One of the more practical applications for those studying political science / international relations is the area of "political risk analysis." In particular, there is concern by foreign investors of how shifting political winds affect the climate for their businesses, the ultimate Bad Thing being uncompensated expropriation. But there are many other irritants that may yet cause foreign firms to throw their hands up in frustration. Frustrating enough to keep the final instalment of Harry Potter from the world's fourth most populous country.

For your consideration, today we have Harry Potter and Hollywood Gone AWOL in Indonesia. No, JK Rowling has not quite reneged on having written the last novel about Harry Potter. Besides, I doubt whether she would have penned something with such a mouthful title for Year 8. Rather, this story is Based on Real Life and is occurring right now in Indonesia.

There are two opposing versions here. Both concern the largest motion picture chain in Indonesia, the Cineplex 21 Group, and regulations supposedly introduced at the start of the year on taxes and royalties due to the government from those showing Hollywood blockbusters. The Motion Picture Association (MPA) representing the largest US firms have worked with Cineplex 21 for the longest time, and it is the latter which has come under fire the most from Indonesian government officials. While Cineplex 21 claims it was not aware of the new regulations coming into effect (which obviously require larger payments being made to the government), the authorities point out that Cineplex 21 has been recalcitrant in paying up.

So, with the largest Indonesian movie chain not being able to show first-run Hollywood movies over alleged arrears--the very same one which has an exclusive deal to show such movies in the country--they've been screening nearly everything else to the annoyance of local filim buffs. As with other American commercial interests facing fettered access, this has become a full-blown trade issue:

Debates over the absence of Hollywood movies at local cinemas have gone bilateral, with Indonesia asking the US to find other importers to end the five-month Hollywood movie drought amid the summer blockbuster season. Local importers, which have the exclusive rights to import Hollywood blockbusters, have suspended import activities since January as they settle tax cases in court involving Rp 300 billion (US$35.09 million) in royalty fees and penalties in arrears. The importers said they were never aware of such obligations.

Ever since, Indonesians enjoying the luxury of movie theaters in 65 cities across the country have been screening lower-quality flicks such as Beastly and What Women Want, while much-awaited blockbuster films such as Black Swan and Kung Fu Panda 2 are nowhere to be seen. “In the [bilateral] meeting, which was also attended by the US ambassador, we said there were many importers willing to work with them,” Finance Minister Agus Martowardojo said over the weekend.

Indonesia’s cinema industry has long been dominated by the Cineplex 21 Group, which acts as both importer and distributor and also owns the largest theater chain. Of 600 total theaters in the country, about 500 are owned by the 21 Cineplex Group, 50 by Blitz Megaplex and the remaining by various other businesses. Ananda Siregar, CEO of the second-largest theater chain, Blitz Megaplex, has tried to contact the Motion Picture Association (MPA) to take over import activities, but failed as Hollywood distributors have agreements with the Cineplex 21 Group. MPA represents major Hollywood studios such as Twentieth Centry Fox, Paramount, Sony Pictures Entertainment, Walt Disney Studios and Warner Bros.

Finance Ministry Director General of Taxation Agung Kuswandono said last week that there have been importation requests from new firms to ship foreign movies. “But I don’t know if they are [affiliated] with the existing players or not.” If they are affiliated with existing players, Agung added, they might not be allowed to import. “We are not only banning the company, but also the directors. So, we need to look at it first, to see if these [new importers] are only an effort to shift position from being banned to being allowed [to import].”

In the meeting conducted on Tuesday, both the Indonesian and the United States governments have also called the “Hollywood boycott” bogus, Agus said. “The American representatives clearly understood that Indonesia has no problem with American film exporters, producers or government. but there is a problem that needs to be solved by [local] importers that have been acting as American film importers for the MPA.”

From the fiscal front, the government has pushed efforts to ease importation of foreign movies by simplifying import procedures for foreign movie importers. The Finance Ministry stopped the royalty fee requirement, but instead imposed a new duties system that requires importers to pay import duties of Rp 21,000 to Rp 22,000 per minute for each copy of a film they brought into the country.

There was an earlier hope that instead of being taxed a fixed proportion of gate receipts which MPA rejected as being too prohibitive, a tax on film length in minutes would solve the impasse. However, as the article above suggests, the Indonesian government appears keener on ending the "Hollywood boycott" not by making terms more favourable to 21 Cineplex but by giving the franchise of distributing Hollywood films to other importers. Like many things in Southeast Asia, I suspect these rule changes have more to do with certain interests wanting something done with 21 Cineplex as opposed to regulatory opaqueness.